"MONEY is the only likeable thing about rich people," said Lady Astor.

What the Government likes even less are rich people who get there by laundering their money.

But the Government's measures aimed at tackling money laundering could prove a sizeable burden for many small businesses, and may be found to be ineffective intackling international terrorism and organised crime.

While the motives for the new regulations post-September 11 are laudable, the effects of the measures are likely to impact heavily on small business.

New regulations require firms to report any suspicions of money laundering to the police. The penalty for failing to do so is up to five years in prison, or a fine.

Businesses are also required to appoint a money-laundering regulations officer, introduce suitable training for all staff to recognise potential money laundering, and to establish internal procedures, appropriate to prevent money laundering.

In addition, businesses will have to maintain identification procedures for those with whom they do business, and keep records of identification and of all transactions for at least five years from the date the business relationship ended.

It is heavy-handed and will put a large regulatory burden on a particular sector of the economy. The Government line is that this is to do with serious crime and, if it is inconvenient for small business, that's tough.

The FSB is not alone in fearing that the new regulations are badly thought through, and are unlikely to be effective. The chief executive of Royal Bank of Scotland has complained that penalties imposed for procedural lapses by banks were "so draconian that you might as well report every transaction".

There are two areas in particular that are likely to affect SMEs. The first is the cash requirement, whereby any one transaction involving more than £10,000 in cash from customers falls under the regulations.

Car dealers, jewellers, fine art dealers and auctioneers are all obvious candidates for the rules, and many businesses are unaware and unprepared for what is required.

The second area is the regulations placed on accountants and tax advisers to report any suspicions of money laundering, and to make detailed checks on the background and identity of customers. There is a problem with the requirement to report any suspicion. It is a lawyer's delight as to what a suspicion is. It is also hard to see that, on the whole, they will do any good in their designed objective to catch criminals. It is another case of regulation for regulation's sake.

Say a client of a tax adviser wants one-off advice on, for example, a single capital gain. The fee might only be £100 for the service, but the requirements for checking identification and background make that uneconomic.

A report from the European Policy Forum also casts doubt on whether the system can cope with the 150,000 suspicious activity reports expected in 2004 alone.

Money laundering, the report says, can be tackled either by focusing on terrorists or criminals, or by looking at "the generality of citizens", and seeking to sift through the evidence of daily life to identify criminal activity.

The latter is "obviously less focused, more labour intensive and more likely to raise problems of invasion of privacy, clogging of systems and interference with the lives of honest citizens. It is, at first sight, surprising that it seems to be becoming more prominent in the law enforcement system," the report says.

But whatever the drawbacks of the regulations, and doubts about the system coping, business must meet the requirements or face the consequences. We have been warned